NOTE 4: - WARRANTS TO PURCHASE ORDINARY SHARES

In August 2016 and April 2017, as part of its financing rounds, the Company issued 6,554,016 and 2,515,775 warrants to purchase Ordinary Shares of the Company, nominal value NIS 0.01 per share with an exercise price of $3.5995 and $6.785 per warrant, respectively. The warrants are exercisable immediately upon issuance and may be exercised at any time prior to August 2021 and April 2022, respectively. The Company and all holders of outstanding warrants have entered into amendments to such warrants (the “Warrant Amendments”). Under the Warrant Amendments, in the event the merger is consummated by December 31, 2018, the warrants will not be assumed by United Therapeutics or Merger Sub, and instead the warrants will be cancelled and converted into the right to receive $2.33 for each share issuable upon exercise of a warrant issued in 2017 and $2.71 for each share issuable upon exercise of a warrants issued in 2016. The Warrant Amendments will terminate if the Merger is not consummated by December 31, 2018 (See also Note 1).

On May 25, 2017, 1,351,766 warrants that were issued in August 2016 were exercised into ordinary shares.

The Company accounted for the warrants according to the provisions of ASC 480 “Distinguishing Liabilities from Equity” and ASC 815-40, “Derivatives and Hedging - Contracts in Entity’s Own Equity” and due to certain terms and conditions, the warrants classified as a liability. As of June 30, 2018, the Company is using both market approach and Income approach (Monte Carlo Simulation Method) in estimating the fair value of the warrants. The assumptions used under the market approach reflect the consideration to the warrants holders upon consummation of the Merger Agreement under which United Therapeutics will acquire the Company.

The fair value per warrant issued in August 2016, as of June 30, 2018 and December 31, 2017 is $2.52 and $1.60, respectively. The fair value per warrant issued in April 2017, as of June 30, 2018 and December 31, 2017 is $2.13 and $1.20, respectively.

The following assumptions were used in the Monte Carlo option pricing model and the fair value of the warrants.

Warrants issued on August 2016:

	June 30,		December 31,
	2018		2017
	Unaudited

Risk-free interest rate (1)	2.67	%	2.12	%
Expected volatility (2)	79.8	%	76.3	%
Expected life (in years) (3)	3.09		3.59
Expected dividend yield (4)	0	%	0	%

Warrants issued on April 2017:

	June 30,		December 31,
	2018		2017
	Unaudited

Risk-free interest rate (1)	2.67	%	2.12	%
Expected volatility (2)	79.8	%	76.3	%
Expected life (in years) (3)	3.82		4.32
Expected dividend yield (4)	0	%	0	%

(1)

Risk free interest rate based on yield rates of non-index linked U.S. Federal Reserve treasury bonds.

(2)

Expected volatility was calculated based on actual historical share price movements of companies in the same industry over a term that is equivalent to the expected term of the warrants.

(3)

Expected life was based on the contractual term of the warrants.

(4)

Expected dividend yield was based on the fact that the Company has not paid dividends to its shareholders in the past and does not expect to pay dividends to its shareholders in the future.

The Company re-measured these warrants at fair value as of June 30, 2018 and consequently during the six months periods ended June 30, 2018, the Company recorded $7,093 as a financial expense as a result of increase in the warrants’ fair value predominantly due to the terms of the amended warrant agreements. Total fair value of the warrants as of June 30, 2018, is $18,436.